Betterment is a leader as a simple, low-cost robo-advisor. And in this Betterment review, we dive deep into one of our favorite robo-advisors. Simply put, Betterment is changing the world of investing.
Betterment is best for:
Investors who want tax optimization
Betterment at a Glance
No account minimum for Digital; $100,000 for Premium.
0.25% for Betterment Digital; 0.40% for Betterment Premium.
Expense ratios for ETFs range between 0.07% and 0.15%.
No account fees.
Portfolio of 14 different ETFs; specialized portfolios including core portfolio, Goldman Sachs Smart Beta, Blackrock Target Income, socially-responsible investing.
Individual, joint, traditional IRA, Roth IRA, and SEP IRA, inherited IRA, trust, checking, and savings
Betterment’s tax-coordination portfolio adds a lot of value to the already great service.
Betterment estimates annual savings of 0.48% or 15% over 30 years.
Betterment offers free tax-loss harvesting and re-allocation/portfolio balancing.
Betterment will also automatically rebalance your portfolio.
Savings Account/Cash Management
Cash management/high-yield savings account and checking account offered.
Live chat is available plus representatives are available by phone 7 days a week until mid-late evening EST.
There is a special line for 401(k) customers, Plus, and Premium customers.
Available with Betterment Premium or for a one-time fee of $199 or $299 for Digital users.
What is Betterment?
Betterment is a robo-advisor with low fees, a great user experience, and a plethora of portfolio options. One of the very first robo-advisors, we’ll explore this product in our Betterment review.
Jon Stein founded the company in 2008. Then in 2010, the company officially launched after a big debut at TechCrunch Disrupt NYC. After that, Betterment scored $3 million in funding and has enjoyed steady growth ever since. Stein still serves as Betterment’s CEO today.
The press has been kind to Betterment as well. For example, you’ve likely seen glowing reviews in the Wall Street Journal, Forbes, and CNN.
But Betterment’s portfolio results have proved that this is more than hype. Indeed, Betterment now has more than 500,000 users and manages over $22 billion.
Betterment is an excellent robo-advisor. Accordingly, investors use it to get advice on many different investment opportunities, including:
The platform allows you to create a portfolio that invests your money in low-cost funds. Betterment then does the rest. Also, Betterment uses fractional shares, which help you fully leverage your money.
Fractional shares allow you to buy tiny chunks of a share. Thus, you won’t have to wait until you can buy full shares.
And Betterment is not just a bunch of algorithms. Hence, it has a great reputation compared to its competitors, such as Wealthfront.
Because of this, Betterment’s portfolio grew 172.9% between 2004 and 2020. And in 2013, the platform boasted 11% growth with a 70% stock allocation.
During the same time period, the S&P 500 yielded 174%. That means Betterment was slightly lower than the S&P, although not by much. And given that Betterment invests in low-cost ETFs, you shouldn’t expect to beat the market.
As you can see, average Betterment returns run close to S&P 500 performance.
And considering Betterment has automatic tax-loss harvesting and rebalancing, you can hardly go wrong. After all, those features mean your Betterment portfolio will need virtually no ongoing maintenance.
Betterment has many unique features that set it apart from the competition. For this reason, your portfolio will be secure and well-managed.
Betterment allows you to save and invest for a variety of different goals. They include:
Custom Asset Allocation
Customization is based on the account type an investor has and what their risk tolerance looks like. In other words, Betterment will adjust your investments based on risk tolerance.
This feature is especially useful for investors with irregular income. That’s because you can set up automatic deposits when your bank account balance reaches a certain amount.
Likewise, you can limit the amount of investment. Above all, the best thing about SmartDeposit is how easy it is to set up.
This feature allocates assets based on the tax efficiency of pre-tax and after-tax accounts.
Passwords to Control Security
You can use external accounts on services like Personal Capital and Mint to see a read-only version of your info. And you can do this without compromising the security of your account.
Mobile App Access to a Financial Expert
Anyone who signs up for a Betterment account can send a message to a financial expert using the Betterment app. Thus, it’s a great way to get answers to any of your questions.
Giving to Charity
Betterment also supports charitable giving allows users to donate some of their shares. Accordingly, it benefits those charities and helps investors avoid tax liability.
Anyone who has $100,000 or more in their Betterment account can take advantage of the Flexible Portfolio feature. It allows you to adjust the asset class weights within your portfolio.
This feature works similarly to how investment pies work in M1 Finance. The main difference is that with Betterment, you are only working with a set of ETFs, whereas M1 allows you to add individual stocks.
Betterment Financial Advice Packages
These packages allow you to get help from human financial advisors. That includes advice from a licensed financial expert or certified financial planner. And if you have complex finances, that can be especially helpful.
For $199, you can book a 45-minute call with a human advisor.
Then, if you want a call that is more tailored to your needs, you can book one of four 60-minute calls for $299 with a human advisor:
Betterment Cash Reserve and Checking Account
The Cash Reserve account replaces the previous Smart Saver option. The new account is a cash management account called the Cash Reserve account.
The new high-yield savings account has an interest rate of up to 0.40% APY. Additionally, there are no fees to pay.
Betterment Checking users have access to the following:
Betterment checking accounts
Visa debit cards
The Betterment checking account also has some nice features. For example, Betterment will reimburse all ATM fees when you use your debit card. That means both foreign and domestic. Plus, deposits are FDIC-insured.
It also eliminated overdraft fees, transaction fees, and minimum balances. What’s left? A no-nonsense checking account.
Betterment IRA Review, and Other Account Types
Because so many users start Betterment IRAs, this account type is worth a little extra attention. In short, an individual retirement account (IRA) helps with retirement savings.
You can also use Betterment’s retirement calculator to find out how much you need to meet your retirement goals. As a result, you’ll be able to choose the right retirement account.
Which one is best depends on tax deference preferences and retirement goals. Either way, Betterment’s visualization tools make it easy to see the advantages of each tax model.
Also, users can start taxable accounts, 401(k), trust accounts, and 529 plans for college planning.
There is no minimum balance for the Betterment Digital plan. On the other hand, the Premium plan has a $100,000 minimum.
Investors can get unlimited access to investment advisors by phone and email with this service. But it’s worth noting that the Premium plan has a minimum account balance of $100,000.
On the whole, there is an impressive range of low fees all round for all Betterment services.
Betterment offers users a strong selection of individual stocks and bonds. As a result, users see great historical performance and affordability in an investment account.
The user selects their own stock/bond allocation. To explain, bonds generally offer slow growth, reliable dividends, and a low risk of value loss. Conversely, stocks are more volatile but can experience higher growth.
The range of expense ratios for Betterment’s ETFs is from 0.07% to 0.15%, depending on asset allocation.
Betterment’s current portfolio offerings are as follows:
iShares J.P. Morgan USD Emerging Markets Bond (EMB)
*Note: Betterment stocks slightly favor value and small-cap stocks, which historically outperform the broad market.
Portfolio Balancing with Betterment
Betterment automatically balances your portfolio when certain criteria are met. No action is needed from you to trigger rebalancing. Here are the methods Betterment uses:
Cash Flow Rebalancing: suggested when drift reaches 2%
Sell/Buy Rebalancing: automatically triggered when drift reaches 3%
Allocation Change Rebalancing: corrects drift when you manually change your target allocation
As suggested above, you always have the option to change your portfolio allocation. However, that isn’t necessary to trigger rebalancing, which happens automatically any time drift reaches 3%.
Socially Responsible Investing
Socially responsible investing refers to stock and bond ETFs that have a positive impact on the world. Socially responsible investing often refers to ESG investing, which is investing with an environmental, social, and governance focus.
This investment strategy is growing rapidly. Indeed, the percentage of investors allocating at least a quarter of their portfolios to ESG increased from 48 percent in 2017 to 75 percent in 2019.
Betterment allows users to invest in ESG funds while being fully diversified and low-cost. Specifically, it replaces the following asset classes with SRI alternatives:
U.S. stocks – large-cap
Emerging market stocks
Developed market stocks
Betterment has offered responsible investing since 2017. But, in 2020, it expanded its socially responsible products. As a result, the original portfolio became known as the Broad Impact portfolio.
It then added two new socially responsible portfolios: Social Impact and Climate Impact. In doing so, it allows investors to hone in on the issues they value most.
Climate Impact Portfolio
According to NASA, the average global temperature has risen about 2.12 degrees Fahrenheit since the late 19th century, and investors are taking notice of this issue. The Climate Impact portfolio focuses on mitigating climate change.
In particular, it invests in three areas:
The companies with the lowest carbon footprints in each sector
Funds that actively exclude companies with fossil fuel reserves
Green bonds, which invest in alternative energy, pollution control, and climate adaptation
Specifically, the Climate Impact portfolio invests half of its assets in the iShares MSCI ACWI Low Carbon Target ETF (CRBN). It’s worth noting that low carbon does not mean carbon-free.
CRBN scores a C grade on Fossil Free Funds and has almost $23 million invested in fossil fuels. That said, the fund also has almost $485M in assets. That’s less than half a percent of its equity in fossil fuels.
And that’s better than other popular funds such as VTSAX. Indeed, this fund has about 6% of its equity in fossil fuels. Still, I would have liked to see a slightly better score in terms of climate impact.
The rest of the Climate Impact portfolio is invested in SPYX, EFAX, and EEMX. SPYX also scores a C on Fossil Free Funds. On the other hand, the other two score slightly better with a B grade.
Social Impact Portfolio
The Social Impact portfolio invests in US companies that value diversity. This includes funds such as the NACP ETF and the SHE ETF.
These funds give exposure to organizations that value ethnic, racial, and gender diversity.
BlackRock Target Income Portfolio
This is a relatively new portfolio option at Betterment. Still, it’s an ideal solution for anyone who is looking for low-risk investments.
To illustrate, the entire portfolio is centered on bonds that provide a low level of risk.
Goldman Sachs Smart Beta Portfolio
This is another portfolio that is a recent addition to Betterment. So that it can compete with Schwab and others, Betterment users benefit from the implementation of the Goldman Sachs Smart Beta portfolio. To explain, this helps improve returns.
Betterment vs. The Competition
Here, we’ll take a look at how Betterment compares to its various competitors. In particular, we’ll compare it to M1 Finance, Vanguard, and Robinhood.
Vanguard can sell you the same portfolio as Betterment for a slightly lower annual fee. But only if you are willing to do a lot more work on your own. And in most cases, the cost difference is very slight.
At Vanguard, you’ll also have to do all of the following on your own:
Tax-coordinated portfolio service
These perks more than cover the cost of your Betterment fees. So if you’re wondering, “is Betterment Better than Vanguard?” the answer is it depends. Although Betterment comes with fees, you can a lot of value for them.
Betterment and Robinhood both have a lot to offer, but the target market is quite different. We’ll find out why in this quick comparison.
Betterment is great for those who want a hands-off approach to investing. Specifically, once you determine your stock/bond, all you have to do is add money to your portfolio.
Then the platform takes over. And since it has automatic rebalancing and tax-loss harvesting, it is a set-it-and-forget-it solution. Of course, you do pay a fee for that convenience, which is something to keep in mind.
Robinhood is quite different. Because the app is a commission-free trading platform, it allows you to trade a variety of different assets.
Specifically, you can use Robinhood to trade stocks, bonds, ETFs, and options. And you can even trade cryptocurrency with this app. There are no commissions for any of these trades, nor is there a membership fee.
What you don’t get with Robinhood is any sort of dynamic rebalancing or tax-loss harvesting. That’s because it’s more of a DIY solution.
However, the lack of commissions makes Robinhood great for more active traders. Surely, day traders would find this app useful.
It’s time to take a look at what Betterment has to offer in more detail.
Too busy to read the full review? Here are some answers to your deepest burning questions about Betterment.
Can Betterment Be Trusted?
You can indeed trust Betterment; it has been around for more than a decade. Plus, the company is regulated and its users are insured by the SIPC. Betterment Checking is FDIC-insured up to $250,000. In addition, it has great scam/fraud protection and encryption.
Betterment is indeed a good investment for many people. To illustrate, it invests your money in a diverse portfolio of 14 ETFs.
This allows it to have strong long-term performance. And it does that with a low management fee of 0.25% for Digital members.
Can You Lose Money with Betterment?
Yes, you can lose money with Betterment, at least in the short term.
Betterment invests your money in the stock market, which is subject to short-term fluctuation. Most stock portfolios do make money but often have periods of negative return.
Your portfolio allocation plays a role as well. For example, aggressive portfolios will be hit harder during bear markets.
Betterment has an interactive tool on its website which allows you to see past returns using real Betterment portfolio data. Unsurprisingly, over the past year, a more aggressive portfolio would have fared better than a more conservative one.
For instance, from June 2019 to June 2020, a Betterment portfolio of 60% bonds and 40% stocks would have had a +2.3% return. Conversely, a portfolio of 100% stocks would have had a –2.7% return.
Can You Take Your Money Out of Betterment?
Yes, you can take your money out of Betterment at any time. Betterment doesn’t charge any fees when you do so. However, you may be responsible for capital gains when the money comes out.
Note that money invested for more than a year is subject to long-term capital gains, which is lower than short-term capital gains on investments held less than a year.
The only exception to this is if you have a tax-advantaged account in Betterment, such as an IRA. However, money withdrawn from a traditional IRA before age 59 & 1/2 is subject to a 10% penalty. That penalty doesn’t apply to Roth IRAs.
What Are People Saying About Betterment?
Yes, we are fans of Betterment, but we aren’t the only ones. For instance, here are a few highlights of Betterment’s ratings from different platforms:
And what do people have to say about Betterment, exactly? Here are a couple of verified reviews from real people:
“I absolutely love Betterment and the automatic investing services they provide at a very low fee. Their website is extremely user friendly and you can make changes or withdraw your money at any time. … I am a CPA and I have never seen anything that would make me think they are not trustworthy.”Jeffrey of Bartow, FL
How Do I Sign Up?
At this point, you might be ready to sign up for Betterment, and it’s really easy. In fact, it only takes a couple of minutes.
New users input all the usual information, then start asking some questions about their investment goals. For example, your risk tolerance, time horizon, etc.
Next, Betterment asks you to link to your financial institution, which can be completed in minutes. New funds show up in a couple of days, at which point your account is up and running.
Users transferring IRAs and other accounts from other brokers will usually see the accounts appear in as soon as 2-3 weeks. There’s no minimum deposit to begin, but make sure to take advantage of free service for the initial deposit amounts specified above.
Once your account is set up, Betterment will send you a series of helpful emails. Accordingly, these emails detail Betterment features and make sure you’re getting the most out of the service.
Betterment is a robo-advisor that simplifies investing. It does this with flexible portfolios, high yield savings, and more. And if you set up automatic deposits, investing can be fully automated.
To sum up, Betterment is great for financial planning and investment strategies.
Investors and personal finance enthusiasts can appreciate just how easy they make it.
Hence, new investors are signing up by the thousands. With no minimum investment and low fees, it just makes sense. Indeed, you can even use your debit card anywhere and never pay ATM fees. And the Betterment Cash Reserve account makes things even easier.
We love how responsive Betterment is to user feedback and how quickly they respond to our emails. Plus, they’ve added so many useful features and improvements in a short time.
We only expect Betterment to get better. Even now, they’re a true leader in the robo-advisor and modern investment landscape.
Bob Haegele is a personal finance writer, entrepreneur, and dog walker. Bob has been writing about personal finance for three years and now manages several personal finance sites, including The Frugal Fellow, Modest Money, and Blooming Wealth. You can also find him contributing to popular websites such as Yahoo! Finance, MSN Money, and GOBankingRates. You can see more of his work on Muck Rack and Contently, or connect with him on LinkedIn.